Computer glitch blights national insurance payments

A new Revenue computer problem has left half a million national insurance payers with holes in their records, resulting in some being asked to pay twice to avoid losing part of their state pensions entitlement.

National insurance contributions for the tax year April 2004 to March 2005 are missing from the records of some 500,000 taxpayers. They could remain "lost" until early autumn. The loss of contribution records leads to zero payments or underpayments for claimants for national insurance-based benefits, such as jobseeker's allowance for the unemployed, and the basic state pension. And many have been asked to pay extra to plug the apparent gaps in their contributions records, although they already paid in full.

This is a further embarrassment for HM Revenue and Customs, the umbrella tax organisation that takes in national insurance. It follows recent major IT failures and massive cost over-runs in both the main Revenue computer and in that ordered by the Child Support Agency. There were also Treasury red faces after an admission, late last month, that computer glitches were part of the problem that recently forced ministers to write off £3bn in tax credit overpayments.

One Guardian reader, who has asked for anonymity as he is a "senior civil servant", requested a copy of his state pensions forecast last month. "I've recently turned 60, and I'm considering immediate retirement. So I want to know what I will get when I reach state pension age at 65."

But he was amazed to discover from the Department for Work and Pensions (DWP) paperwork he received, that he had paid no national insurance at all in 2004-05.

"I knew this could not be. But I checked my salary slips, anyway, and they all show I paid national insurance in full. And, as I work for the state, I have to assume these reached the Revenue," he says.

Because he had this apparent gap, the DWP said his basic state pension would be cut by 9% - around £7 a week at present rates - for the rest of his life once he reached 65. "They said I could avoid this by paying £371.80 in extra national insurance to repair the hole in my records," he says.

He then contacted HMRC which told him that there had been a major problem in recording 2004-05 national insurance payments due to a computer failure.

"The Revenue worker I spoke to said this has affected everybody on national insurance - and that's at least 30 million people. This is truly horrifying on a national level, as well as worrying for individuals who receive unwarranted demands for payment. National insurance has been with us since 1948, so they have had plenty of time to get it right," he says.

An HMRC spokesman said: "We are sorry that the slightly delayed introduction of a new IT system last year meant that, in a small amount of cases, updating individual national insurance records from the details on employers' annual returns took longer than normal. More than 98% of records are now up-to-date."